Demat Account V. Trading Account 

Introduction

Before the demat account was introduced, shares were held in physical format, meaning in actual paper format. A demat account is an electronic account that serves as a replacement for physical certificates.

In 1996, the Government of India introduced a Depository System via the Depository Act, 1996. The main purpose was to keep up with the world markets in work efficiency as well as to keep a check on fraud.

Let’s understand this in a similar manner to that of your bank account. Your bank account holds your money safe for you. In a similar manner, a demat account holds your shares, bonds, securities, etc. in a digitalized manner. The dematerialization process is the process of converting your physical shares and securities into digital format. A demat account holds all these shares and makes trading easier for us.

If you want to trade or invest in the stock market or other securities, having a demat account is a must. It is also mandatory if you want to venture out into the stock market.

Storing in the electronic form of shares eliminates the problem of theft, damage, etc. The prevalent issue of forgery is also eliminated. Handling of shares also becomes safe. It makes the transactional and operational processes easier. It provides us with a single integrated platform. It has other perks too, like less paperwork, being more convenient and cost-effective, and there is no need for multiple channels of communication.

Trading Account

A demat account is required in order to hold securities. However, it does not permit you to transact with them. You must open a trading account in order to buy or sell stocks.

An investment account used for transacting in securities is referred to as a Trading account. Through your Trading account, you can regularly purchase or sell assets. Without a trading account, it will be impossible for you to buy or sell listed stocks. It is an essential tool for investing in stock markets easily while also making the procedure simple and secure.

The purpose of opening a Trading account is to easily facilitate the trading of shares, government securities, listed bonds, ETFs, etc. You must register with a stockbroker or brokerage firm in order to activate your online trading account. A unique trading ID (UID) will be issued by the broker for stock market transactions.

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Demat Account vs. Trading Account

The following are the differences between a trading account and a demat account:

1. Functionality: The primary distinction between a demat account and a trading account is that a demat account is used to store securities in electronic formats, such as share certificates and other papers, whilst a trading account is used to buy and sell these securities on the stock market.

1. Nature: A demat account is very similar to a savings account where you can hold your securities in electronic form. All trading account transactions, like selling or purchasing, are reflected in the demat account as credit or debit.

A trading account is like an ATM card. When this account is linked to your demat account, you can complete trades successfully.

1. Charges: Generally, maintaining a trading account is free, though this depends on the broker. There can be an annual maintenance fee involved. Very often, it is a hidden

How To Open A Demat Account

The Process of opening a demat account online is quite simple and quick.

1. Select a Depository Participant(DP): After comparing the features and services provided by several DPs, you may choose the one that best suits your requirements.
2. Submit an application: An application form must be completed in order to open a new demat account. You must also submit your requisite KYC papers, including proof of identity, proof of address, a PAN card, bank information, and other personal information.
3. Verification: The DP will verify your identity and your KYC documents. You will have to pay any necessary fees associated with opening a demat account.
4. Final approval: After successful completion of the verification process, your account will be opened. A unique ID will be provided to you.

How To Open A Trading Account

1. Select a Stock Broker: Select a stock broker or brokerage firm to open a trading account after doing extensive research. Before choosing a broker, consider various factors like fees charged by them, the trading platform’s user interface, and the value-added services.
2. Submit an application: You will be required to complete an account opening form and a Know Your Customer (KYC) form.
3. KYC Verification: This is a verification of your identity documents and submitted documents.
4. Final Approval: It generally takes 2-4 days to activate the trading account after the completion of the verification process.

Documents Required

The different types of documents required for opening a demat/trading account are:

1. Proof of Identity
2. Proof of Address
3. Proof of Income ( specific conditions)
4. PAN Card Details
5. Proof of Bank Account (Eg.: Canceled Cheque)
6. PAN Card
7. 1 to 3 passport-size photographs

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